Beginner’s Guide to Crypto Trading Bots — Part 4 —DCA Bots
Do Yourself a Solid with Dollar Cost Averaging!
Do Yourself a Solid with Dollar Cost Averaging!
DCA Trading Bot — Recurring Buy
Profile
Best for : Any Market Condition
Profit Expectation : Moderate/High/Long Term
Risk : Low/Moderate
Dollar Cost Averaging
Dollar Cost Averaging is incredibly simple to grasp.
It just means regular investment at different periods in time, instead of all at once.
Many people who invest regularly but perhaps do not have to cash to invest as much as they want to will do this quite naturally by purchasing the asset several times a year or once a month, at whatever the market price happens to be. (Or whatever their limit order happens to execute if they have certain prices in mind)
Employees with a company stock purchase plan stock operate this way as well.
Overall it’s not a bad strategy for acquiring assets.
The objective of DCA is to potentially accrue more units of the asset over time and lessen the effect of short-term volatility on the total cost basis of an investment.
Example:
You have $10,000 to invest.
You buy $10,000 of the asset, all at once.
Later in the year it’s price bombs by 40%.
OH NO!
Now you are at 40% loss until the market recovers. $6000
Let’s see what happened if you had broken that up into 4 different purchases….
You purchase $2500 in March, let’s say @ $5 per coin.
That’s 500 coins.
You purchase $2500 more in May, let’s say @ $8 per coin.
That’s 312.5 coins.
Repeat this two more times. Let’s say the price is $4 per coin (which is 625 coins), and then again @ $3 per coin (which is 833 coins)
$3 per coin is the end of the year value that represents 40% loss if you would have purchased all of it at $5.
Now for a little math:
If you purchase $10,000 worth in March @ $5 per coin, you would have 2000 coins, which at the end of the year would be worth $6000 after loosing 40% of its value.
500 + 312.5 + 625 + 833 = 2270.5
If you had broken up your purchases instead, you would have 2270.5 coins, which would be worth, $6811.00, instead of $6000.
Either way, in a market where such a large dip happens you will technically be at a loss, but with Dollar Cost Averaging, you will most likely come out ahead over time.
Next time the market shifts up back to $5, you will have $11350, which is 1.3% gains.
In crypto, this can happen faster than you think!
Dollar Cost Averaging is a great way for those who wish to accumulate more of a specific crypto while spreading their risk out across fluctuations of the market.
DCA investing doesn’t technically require a bot unless you just want to use one. Placing orders at different times of the year and simply long term holding that asset is all you need to do.
Some Exchanges do have bots that can accomplish this in an automated fashion, which will make regular investments on your behalf drawing from the USDT balance of your account.
Dollar Cost Averaging — or Recurring Buy Bot?
The name of this bot might be different on different platforms.
If you wish to set this up in Pionex, they call it the Recurring Buy bot.
After you select “+ Create”, scroll to the bottom and you will see Recurring Buy under “Other Bots”.
Select the Recurring Buy bot.
Now all you have to do is enter the amount you wish to purchase, and select the interval you wish to purchase.
That’s about it.
Now you have a bot that will make regular purchases for you at the time interval you have specified.
Easy Peasy.
It is important to note (at least in Pionex) — Pionex has another bot called the DCA Martingale Bot.
The DCA Margintale bot is a bit different because it runs on a Trading Pair system like all other bots, and even though it is based on DCA principles, it is completely different — and for that reason I have granted it an entirely new story.
It needs some in depth analysis, and because the Martingale strategy is my primary personal strategy at this time, I elaborate a lot on it quite a bit.
Click below to read the next article in this series:
Thank you for reading!
Until next time….
Onward and Upward Everybody!
-Chris
Automated Income Lifesyle w/ Chris Morton YouTube
#botlife #tradingbots #dollarcostaveraging #dca #investment #strategy #bitcoin #coinfrenzy #crypto #lovethatshit